Idaho Business Law Your Idaho LLC Operating Agreement
By Lane V. Erickson, Idaho Business Attorney
Every Idaho limited liability company (LLC) has an operating agreement. This is true regardless of whether the owners of the LLC have created an actual written operating agreement themselves, or not. If the owners have not created a written operating agreement, Idaho statutes create a default operating agreement for the LLC under Idaho Code §§ 30-25-101 through 30-25-806. This is what is known as the statutory operating agreement.
The premier business lawyers at the Racine law office, have assisted clients in creating and operating their business for more than 70 years. Additionally, we have helped our clients consider using an Idaho LLC as their business entity for nearly 30 years which is when this entity was first recognized under Idaho law.
We are confident that our business attorneys have the skill, experience, and expertise to help each client with all their business needs, including creating a written operating agreement for their LLC. Our business law attorneys include partners Lane Erickson and TJ Budge, and attorneys Nate Palmer and Dave Bagley. Each of the attorneys on our team have the ability to help you.
So, what’s the big deal about a written operating agreement for an Idaho LLC? This is a good question and really is the focus of this article. We will begin by discussing how the written operating agreement replaces the default agreement that exists under Idaho’s statutes. We will then describe the limits of what an operating agreement can do. Finally, we will focus on how you can change your written operating agreement when the need for a change comes up. This article is a great place to start on this subject, but if you have questions or concerns, we encourage you to contact us so that we can answer your particular questions.Replaces the Default Statutory Operating Agreement
Our goal in representing clients who have or are creating an LLC entity as part of their business operations is to help them create a written operating agreement so that they are in control of the terms and conditions of both the agreement and how the LLC will be operated. The reason for this is that an operating agreement is a contract between all the owners of the LLC. As a contract, the operating agreement is binding on all members of the LLC.
The operating agreement identifies who the owners of the LLC are, the percentage of ownership each owner owns in the LLC, the type or nature of business operations that are completed by the LLC, and who is in control of the management of the LLC. Additionally, the Operating agreement can also control what happens to an owner’s ownership interest in the LLC if that person is divorced, disabled, or dies. Furthermore, the operating agreement can control what happens to an owner’s ownership interest if they simply decide to get out of the business.
When there is no written operating agreement, the statutes listed above, create a default operating agreement for the LLC. Based on our experience, it is far better for the owners to come together and create their own written operating agreement than it is for them to be bound by the default statutory operating agreement.
However, simply sitting down and writing out an operating agreement may not alone be enough. If the owners of the business who create an operating agreement missed some essential items that should be in an operating agreement, then those specific items are controlled by the default statutes even though there is a written operating agreement. For this reason, we always encourage our clients to allow us to help them create a written operating agreement. By doing this, we make sure the most important parts of the operating agreement are decided by the owners, rather than by the statutes.Limits on What an Operating Agreement Can Do
Keep in mind, there are some limits on what an operating agreement can actually do. Specifically, an operating agreement can’t change the law that applies to an Idaho LLC entity. Idaho Statutes specifically state that Idaho law will govern all Idaho LLCs. See Idaho Code § 30-25-105(c).
Additionally, even if you have a written operating agreement, it cannot limit the LLC’s capacity to either sue or to be sued in its own name. See Idaho Code § 30-25-105(c). Finally, the written operating agreement can’t do away with the specific Idaho requirement that a registered agent exist for each LLC or that Idaho’s filing requirements with the Idaho secretary of state must be met by each LLC entity.
In other words, while a written operating agreement can control the operations of the LLC, it cannot control Idaho law. Idaho law will continue to apply to all Idaho LLCs as set forth in Idaho statutes.Changing the Operating Agreement
It is also important for the owners of an LLC to understand that they have the power to change or amend the written operating agreement anytime they choose to do so. Idaho law specifically allows the owners of an LLC to amend or change the written operating agreement based on the terms and conditions that are in the original written operating agreement. See Idaho Code § 30-25-105(a)(4). In other words, if the original operating agreement says that a majority of the owners have the power to amend the operating agreement, then that is what it takes for an amendment to be done. However, if the original operating agreement requires a unanimous change to be made by all the owners and that is what is required.
This illustrates yet another reason why it’s important to get help from the beginning in creating your first written operating agreement for your LLC. The attorney that you work with can describe these and other provisions that should be in your written operating agreement as a way of protecting both the LLC, and the owners of the LLC.
As mentioned above, this article is just a beginning place for helping you understand the importance of a written operating agreement. If you have any questions or concerns about your current LLC or about an LLC that you would like to create and how an operating agreement can help, we are confident that we can answer your questions and help you make good decisions.Enlist an Idaho Business Attorney to Help You
Our team of Idaho lawyers can help you with any of your estate planning or probate needs. Whether you are seeking to create or review an estate plan for yourself or would like to help a loved one, we are available to discuss your options and answer your questions at an initial free 30-minute consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a free consultation. You can also email us directly at email@example.com or stop by our office at 201 East Center Street, Pocatello, Idaho 83201. We will answer your questions and help you solve your Idaho Estate Planning problems.